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NC Budget and Tax Center

Three counties get 56 percent of total incentive dollars

The money North Carolina spends on incentives to grow businesses and create jobs overwhelmingly favors the state’s most wealthy urban areas at the expense of the state’s most distressed—often rural—areas that need the most help, according to a report released yesterday by the Budget & Tax Center.

The state has five major incentive programs that were originally created to target business development resources to economically distressed and rural areas in the state. These programs are known as the OneNC Fund, the Job Development Investment Grant (JDIG), the Jobs Maintenance and Capital Fund, the Industrial Development Fund (IDF), and the IDF-Utility Fund. Unfortunately, the programs have not lived up to their promise and have invested more of these resources in the 20 wealthiest counties (designated Tier 3 counties by the Department of Commerce) than in the poorest 40 counties (designated Tier 1), the report finds.

Specifically, the report looks at the incentive awards made by these five programs from 2007 to 2013 and finds the following mismatches in investment:

North Carolina has awarded more than triple the amount of incentive dollars to projects in the wealthiest twenty counties than projects in the state’s 40 most distressed counties. If the state were truly targeting economic development resources to the regions that need it most, we would have spent more in the counties that are most distressed and need investment the most. Unfortunately, we see the opposite. The Department of Commerce has granted more than $840 million through its major incentive programs, and $592 million—more than 70 percent of the money—went to the state’s least distressed, Tier 3 counties.

The state‘s incentive projects promised to create or retain two jobs in the 20 wealthiest counties in the state for every one job promised to the 40 poorest counties. Given that the distressed Tier 1 counties are the most in need of jobs, effectively targeted incentive programs would attempt to deliver more jobs to these counties than to the wealthier Tier 3 counties. Yet the opposite is happening—the state has implemented incentive projects that promised to create almost 90,000 jobs in the state’s least distressed counties, more than double the 42,235 jobs promised to the most distressed Tier 1 counties.

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The interim head of North Carolina’s business recruiting efforts is blaming the state’s public records law for the loss of a large jobs deal that instead went to Texas.

But the two states have similar laws, and both allow the public to see details about economic development proposals once a deal is announced.

Lindenmuth

Lindenmuth

Richard Lindenmuth, the head of a proposed public-private entity to run the state’s economic development efforts, told the Triangle Business Journal that Texas had an advantage over North Carolina when it came to wooing Toyota officials because of public record laws.

Charlotte  narrowly lost out on a bid for the proposal, which will move 4,000 jobs to a Toyota corporate campus in Plano, Texas, according  to the Charlotte Business Journal.  Texas is offering $40 million in incentives, according to a press release from Texas Gov. Rick Perry’s office.

“Why would a CEO ever let us know where they are looking if they are subject to public records,” Lindenmuth said, according to an interview with the Triangle Business Journal.  “Texas knew, but we didn’t. We can’t even have an open, frank discussion about everything.”

It’s unclear what Lindenmuth meant by his comments.  A call requesting comment from the state’s commerce department was not immediately returned.

But there’s little difference between the public records laws of the two states when it comes to economic development deals.

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NC Budget and Tax Center

At his Tax Day press conference, Governor McCrory repeated the often-heard claim that the effect of cutting taxes on the state’s economy speaks for itself. Last year’s tax cuts may be speaking, but they’re not telling the story its proponents hoped—for the very good reason that tax cuts are just a poor strategy for promoting business growth and long-term job creation.

Here’s the Governor on Tuesday:

“Businesses are relocating to North Carolina because of the changes we made in our tax code and that speaks for itself.”

This claim does not bear up under serious scrutiny. In fact, decades of evidence support the opposite—taxes don’t drive business location decisions. Rather, the public investments that taxes make possible are the most important factors in determining where companies decide to locate—investments like an educated workforce, infrastructure, strong industry clusters, and proximity to research and development institutions.

So let’s examine the evidence Governor McCrory presented, starting with Lee Controls—a New Jersey-based company that recently relocated to Brunswick County and cited tax reform as one of the major reasons for their move. The company is promising to create just 77 jobs over several years. While creating even one new job moves the state in a positive direction, the fact remains that trying to dig North Carolina out of the job losses from the Great Recession is going to require more employment growth than can be generated by one 70-job project at a time.

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NC Budget and Tax Center

Partial privatization of the N.C. Department of Commerce took another step closer to reality yesterday when the Economic Development and Global Oversight Committee (or EDGE Committee) reported out updated enabling legislation that authorizes the establishment of a nonprofit corporation to conduct significant pieces of the state’s business development activities. Using last year’s SB 127 as a template, the new version of the bill includes important changes—some for the better, some for the worse, and some that make us go “huh?”

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NC Budget and Tax Center

Earlier this month, the North Carolina Economic Development Board released a new strategic plan for creating jobs and growing the state’s economy over the next decade. The plan listed a number of admirable and important policy goals, including supporting innovation and entrepreneurship, promoting rural prosperity, and strengthening community-level opportunities for economic revitalization.

Unfortunately, last year’s tax cuts and budget cuts have greatly undermined the state’s ability to achieve these goals going forward.

In order to accommodate the $525 million in revenues lost to last year’s tax cut package and still balance the state budget, lawmakers made deep cuts to many core investments—including long-standing state support for nonprofits engaged in economic and community development work.  In the current biennium, the portion of the state budget responsible for these important initiatives—Commerce-State Aid—was cut by $38 million, a 64 percent reduction.

And even this overall reduction masks the true damage to the state’s ability to invest in meeting the new economic development objectives laid out in the strategic plan. The real damage comes from the specific initiatives that were singled out for cuts or outright elimination.

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